What we measure is what we get
Oftentimes in business, the owners or management have an expectation as to what the team should be delivering. Also, the owners and the managers usually believe that the team should be aware of issues that pertain directly to the customer. Finally the management then get frustrated when either the production is not met or the service quality standard is not achieved.
The question that has to be asked is this – what are the owners/managers measuring? Or, if they don’t have a specific scorecard to tell everybody how the business is going, what are they reacting to?
So, for instance, in their staff meetings or individual meetings with team members, what are they talking to their staff about? If they are concerned about the quality but then all they react to is whether there has been adequate production, the staff will soon become aware that “what matters around here” is production, not quality. Behind the scenes, the management might be getting frustrated with the quality, but all they are reacting to in their team meetings is another issue.
So whether it is by way of a relevant, accurate, timely scorecard, or whether it is just by way of management actions, what we measure is what we get.
This point has been illustrated to me recently in a company that I have been working with, where we are in the process of implementing production targets. There was an expectation that the team could only produce 1000 units per day, and there had been some days when production was as low as 800 and not many days when the production was in excess of 1000. So implementing a production target of 1000 per day to start with, with a goal that within 4 weeks we would be able to increase that to 1100 per day, had a remarkable impact. Within 1 week, the team was exceeding 1100 and nearing 1200. Five weeks later, they were at 1400 per day.
Nothing else has changed, other than there is a scorecard, and there are positive consequences happening through reward and recognition from management of achievement of the team. The team has beeen able to together, without input of management, learn how to improve processes that have enabled increased production. Prior to this scorecard, management thought they were doing well when 1000 units per day were produced.
Measures (KPI’s) drive behaviours. Now we can’t measure everything but we need to carefully measure what is important because they can influence the actions of the team.
What we measure is what we get. What are you measuring? Do you have a scorecard? If you don’t have a scorecard, what are you reacting to? There is no doubt that measures can change behaviours. It doesn’t mean that we should measure everything that moves in a business. We only must be measuring what matters, either to the end customer or to the efficiency within the business. There is not doubt that what management views as important by their actions is what they will get.
So again I ask – what are you measuring in your business?
Listen with many ears
Information breeds employee engagement and increased profits.
One of the podcasts that I listen to regularly, having an interest in economics, is Russ Roberts of Econtalk, which can be found at www.econtalk.org. Russ Roberts, of the Charles Mason University in the United States, provides very interesting interviews with economists and other business people on a wide range of business and economic topics. Recently he interviewed with Charles Platt, who had worked for a short period of time at Wal-Mart. and the interview was about some of the lessons that Charles learnt at Wal-Mart, and it’s one of the lessons he spoke about in the interview that I’m covering today in this blog post.
Charles talked about the autonomy that employees had at Wal-Mart. Now, we think of Wal-Mart as the world’s largest company, and the size and scope of its supply chain and the level of control that it potentially seems to have over its suppliers, and also over its staffing. There is the common belief out there that Wal-Mart employees are fairly “hard done by”. Whilst in the United States and Canada last year, we visited a couple of Wal-Mart’s to have a look at this phenomena, but I noted that there is still a large number of staff still being employed by this company. Not everybody hates it, it seems.
But the lesson that Charles talked about was the actual level of autonomy that individual employees were given. They had a hand-held scanner called a Telexon linked to a computer that runs the store. This tells how much of a particular item is available in stock, the price and how much Wal-Mart pays for the item. Thus, each individual employee knows what the profit margin is of a particular stock item. Wal-Mart wants employees to be properly informed because they want staff to have the information to be able to make informed decisions. Because the individual employees are given the authority to re-order merchandise and also authority to do a “special” value price.
So individual employees can set out a pallet stamped with a discount price, print the price stickers, put it on the pallet, and those who set up the most successful value price get a $50 coupon or similar item. Those who are particularly successful end up being recognised by head office. So think about this for a minute – low-paid employees on typical wages in the US of $7-$10/hr have the information to know exactly the profit margin of each line item, and not only that, have the authority to put on a special price where appropriate.
Wal-Mart believes that this local knowledge will lead to greater sales overall than dictating what the price must be from head office for every line item without any discretion by anybody. There are measures in place through regular weekly meetings on the profit and loss of each division within the Wal-Mart store to ensure that there is not over-zealous under-pricing, but the important point to remember here is that all employees were given the information and then the authority. Oftentimes in business, I see important information on the profit and loss statement being withheld from team members, but here we have the world’s biggest company giving the front-line people not only the information on the profit margins for each line item, but also the authority to change the prices if they see fit.
I do believe that it is important that we inform everybody and have a relevant scorecard, so everybody knows how the business is going. Give the individual staff the information on the buisness; give the people the information to be able to know the consequences of their actions. If the world’s biggest company is able to provide their profit and loss per line item to their front-line employees, surely you can. Yes, there needs to be the appropriate checks and balances in place, but not as many as you may think. It is through the value of local knowledge that the head office of Wal-Mart has ensured that they will maximise the sales from each store. Wal-Mart head office would have a lot of information about what is selling, but it doesn’t have the local information as to what is appealing at that point in time for particular reasons to that community, whereas the people in the front-line of the store do, so they give them the information to know, so that knowledge can be taking advantage of.
What is the knowledge that is in your employee base that you aren’t taking advantage of? Through this protectiveness of the information pertaining to the profitability of a service or a product, we miss out on being able to utilise the knowledge of our team members. How can you implement a system to take advantage of your team members to lead to increased sales and increased profit?
Are you making enough from your business – a way to measure this
A ratio that can be used to determine whether you are getting an adequate return from your business is Return on Capital Employed (ROCE).
ROCE is calculated as follows :
Let me ezplain further. EBIT means the net profit of a business before interest and taxes. The capital employed can have a number of different meanings however it is the capital necessary to make the business perform. It is commonly represented as total assets less current liabilities or fixed assets plus working capital.
Now before I go onto an example with every ratio it is not perfect. The assets figures in the financial statements are usually represented at cost or even depreicated. This means if the business is using assets purchased many years ago then the ROCE would be better than a business using assets purchased recently everything else being the same. Thus we need to be careful with this number but it is still very useful. We can make adjustments by valuing the assets at their current value to get a better idea of the true ROCE.
So lets look at an example:
|
|
ABC Pty Ltd |
XYZ Pty Ltd |
|
Operating Profit |
100,000 |
150,000 |
|
Total Assets |
500,000 |
1,200,000 |
|
Current Liabilities |
150,000 |
150,000 |
|
Capital Employed |
350,000 |
1,050,000 |
|
ROCE |
28.57% |
14.28 |
The return of both companies is above what could be obtained from investing the proceeds in shares etc but don’t get caught by a larger profit must be better. ABC has a small profit but is using the assets more effectively and thus is a better managed business.
What is the ROCE of your business? Is it sufficient? If not what are you going to do to look at ways to improve it?
Brand engagement and financial performance
Charlene Li for Altimeter Group has recently released an interesting piece of research. Deep brand engagement correlates with financial performance. Her report is stating that the companies that are the most engaged on social media have a distinct financial advantage. The most engaged companies had a superior financial result.
To quote Charlene “Social media engagement and financial success work together to perpetuate a healthy business cycle ; a customer oriented mindset stemming from deep social interaction allows a company to identify and meet customer needs in the marketplace, generating superior profits. The financial succes of the company, in turn, allows further investment in engagement to build even better customer knowledge, thereby creating even more profits – and the cycle continues”.
Whilst Charlene is not saying that there is a proven cause and effect relationship just a correlation, it would seem that the key point is that the companies have a customer oriented mindset. With this mindset you will always be looking for ways to engage more with your customers whether online or offline. The other point is deep engagement. It is not a superficial exercise to collect the most followers but rather having a deep engagement.
Remember a customer oriented business leads to greater financial rewards to everybody involved.
Are we measuring what matters with our online marketing and public relations
I heard an interview with David Meerman Scott recently in which he raised an interesting issue.
When we measure marketing and public relations we have been generally having measurement around leads -number of emails addresses or press hits we get. But to get our ideas to take off in the new media we need to have different measurement. We need to measure – how many bloggers are blogging about our ideas, how many people are downloading our stuff and ultimately how many people are buying our products and services. Measuring the lead will lead to failure – it is not a measure that matters.
These thoughts are provacative and i believe true. Those whose ideas have gone viral are those who made their ebook, article freely available without even email registration. This has then lead to further word or mouth which then leads to increase sales.
The point is measure what really matters not what we have always measured.
Are you measuring what matters online?
Measurements matter, especially online, and the internet, through tools such as Google Analytics and a myriad of other devices and applications, we can measure all aspects of a business’s online performance. Through these tools, we can know how many people are looking at exactly what pages of the website, at where did they come from, how many pages of the website did they look at. We can measure what click-through rate there is from our campaigns. We can measure the traffic that was generated and the conversion of that traffic. We have the number of Twitter followers, the number of fans on Facebook, and all sorts of things, but what really matters? Once again, no matter whether we’re talking online numbers or the numbers offline in respect of our business, we need to be focusing on those numbers that really matter in our business. We need to know what is important and then, armed with that information, we can adjust our strategy accordingly.
Particularly, let’s focus on the number of Twitter followers and the number of fans on Facebook. There are many people out there who are unfortunately just trying to garner the largest Twitter follower base or Facebook base or LinkedIn connections, but really what matters is the connections we are having with those people – how engaged are we with those people? We could have 7000 followers, but are only communicating and engaging with a handful, so the number becomes somewhat meaningless. We could have a number of fans of our Facebook page, but they aren’t interacting with us and we aren’t interacting with them, so whilst the number is of some use, we need to be concerned with how many of these followers or friends or connections we are actually engaging with. We need to have loyal friends and fans who are willing to provide word-of-mouth recommendations and engage with others on our behalf – they are the followers we need, and we need to know how many of those we have in our various online communities.
It would be more appropriate to have 50 followers on Twitter who really are enthusiastic about our product or service, than 5000 people who we don’t engage with or are not interested in us. Seth Godin speaks of tribes, garnering people together who are willing to join a community and be actively involved. We need to remember that a person is only part of a tribe by choice and through active engagement. So accordingly, for our online activities, we need to be engaging with people.
I have seen people talk about the traffic they get to their website, but how much of that traffic is actually being converted into some engaging activity with the business? We need to always remember, whether it is in respect of our offline business or our online activities, to measure what matters, focus on engaging with our community, engaging with our customer base, garnering the connections with the people who are willing to promote and participate in our tribe.
Your thoughts on this would be appreciated.
Interesting Grocery Store
Recently I was in Hobart on business and was invited to go to a grocery store in Hobart that I was told was “Australia’s best grocery store”. The person who told me this was just a customer, not in any way involved in the ownership or management of the business. The grocery store is Hill Street Grocer, which can be found at www.hillstreetgrocer.com and it is an interesting story. The business is a gourmet grocery store specialising in fresh fruit, vegetables, deli goods, locally grown meat, dairy products and specialist breads and cakes. They source most of their product from the local growers, and their fruit and vegetables don’t travel very far, to ensure the maximum freshness.
So I went into the store at 6pm on a Saturday evening. It is not a large grocery store. Upon walking in, the thing that most struck me within metres of entering was that there was a buzz, and that the design, layout and presentation of all aspecs of the store were excellent. The attention to detail was extremely good. The fresh fruit was perfectly displayed in a very appealing fashion. Hanging from the ceiling above the fresh fruit was garlic, leeks etc making a interesting display. Behind the counters was quite an array of local wines. Further around were the specialty breads. Overall, the store had a fantastic feel, and at 6pm on a Saturday night, it was buzzing. There was a lot of traffic to and from the store. It was well staffed store with attention being paid to the display. It is a small business taking a niche within the grocery industry in providing fresh fruit and vegetables and specialty breads and wines amongst other grocery items, and creating an atmosphere that encouraged you to visit again.
Unfortunately, this story doesn’t end there. I believe that the Hill Street Grocer is a very positive business, and if you are ever in Hobart, I would recommend that you do visit the store, because you will see aspects of the business that can be applied to all manner of businesses – the attention to detail, the creation of an atmosphere, the presentation, a niche produce or service, consistently delivered.
But I had a disappointing experience after this. Looking around the store I realised I want to share this story on my blog and to my clients so I took a phone on my IPhone of the display. I was approached by one of the management, who having seen me take the photo on my iPhone, asked me to stop taking any more photos. He did not ask why I took a photo or anything about it. If I was a competitor, they wouldn’t need to take the photo to understand the value of the business, but at the point I had taken the photo, I was going to be putting an extremely positive story on my blog, and whilst this post is a postiive story by and large, I don’t feel as positive towards Hill Street Grocer as I did, after being reprimanded about the photo.
To me, he neglected an opportunity to further encourage word-of-mouth marketing by allowing a photo of his store to be put on the web. By allowing the promotion of something unique that would surely, through word-of-mouth, deliver more customers. his immediate reaction was that my taking of a photo was somehow a breach of his privacy and accordingly, without asking me why I took the photo, or what I was doing, or anything, recommended that I cease taking any more photos and delete the photo.
So I respect his request but I feel he has neglected an opportunity to develop further word-of-mouth marketing, I’m still somewhat impressed by his business, though I think he could learn more on how to engage with his customers in a way to promote further word-of-mouth.
What are your thoughts on this? Do you think that I shouldn’t have taken the photo? Or do you think, like me, that he neglected an opportunity of a way to engage further with his customers?
Your thoughts would be appreciated.
Customer Service Lesson – Social Media Lesson.
Recently the story of Dave Carroll and United Airlines has been a great lesson in customer service and the impact of social media. Dave Carroll is a singer songwriter from Halifax Canada (www.davecarrollmusic.com). He traveled on a United Airlines flight from Halifax to Chicago and at Chicago a passenger noticed that the baggage handlers were throwing guitar cases. Dave and his band looked out and and their guitars were being thrown. Unfortunately one of his guitars got broken and then he spent 12 months trying to get an apology and compensation from United. United ignored him.
Then the story gets interesting. Being a singer songwriter he wrote a song and shot a music video and posted to his website and youtube. Check the video out at youtube (it is great) http://www.youtube.com/watch?v=5YGc4zOqozo
This video now has over 3.1million views. Yes over 3.1 million views.
This carries some very useful lessons for everybody. Firstly Uniteds customer service was ordinary and its response to a passengers issue was atrocious. So please take the opportunity when there is a complaint to wow the customer and you will have a loyal customer. Don’t drag the issue out, make a decision and think of the lifetime value of the client.
Secondly – the power of social media. Businesses must be on youtube,twitter, facebook and communicating to their customers who are on the there. Businesses must be managing their brands and engaging their customers otherwise others will be.
There use to be a saying that a happy customer tells another person and an unhappy customers tells ten others. Well now a happy customer through social media can tell many but an unhappy customer will tell MILLIONS.
So get on social media and always remember to take the opportunity of an unhappy customer and wowing them.
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